JACINTO UY DIÑO & NORBERTO UY VS. CA & 2.
On the assumption that they are, what is the extent of their
METROPOLITAN BANK AND TRUST COMPANY
G.R. No. 89775, NOVEMBER 26, 1992
FACTS:
Uy Tiam Enterprises and Freight Services (UTEFS), thru its
representative Uy Tiam, applied for and obtained credit
accommodations from Metrobank in the sum of P700k.to
secure the credit accommodations, Norberto Uy and Jacinto
Uy Dino executed separate Continuing Suretyships, dated 25
Feb 1977, in favor of the latter. Under the aforesaid
agreements, Norberto agreed to pay Metrobank any
indebtedness of UTEFS up to the aggregate sum of P300k
while Jacinto agreed to be bound up to the aggregate sum of
P800k.
Having paid the obligation under the letter of credit in 1977,
UTEFS, through Uy Tiam, obtained another credit
accommodation from Metrobank in 1978, which credit
accommodation was fully settled before an irrevocable letter
of credit was applied for and obtained by the
abovementioned business entity in 1979.
The Irrevocable letter of credit, dated in 30 Mar 1979, in the
sum of P 815,600, covered UTEFS’ purchase of 8K Bags
Planters Urea and 4k Bags Planters 21-0-0. It was applied for
and obtained by UTEFS without the participation of Norberto
and Jacinto as they did not sign the Commercial Letter of
Credit and Application. Also, they were not asked to execute
any suretyship to guarantee its payment. Neither did
Metrobank nor UTEFS inform them that the 1979 Letter of
Credit has been opened and the Continuing Suretyships
separately executed in February, 1979 shall guarantee its
payment.
Pursuant to the commercial transaction, UTEFS executed and
delivered to Metrobank, whereby the former acknowledged
receipt in trust from the latter the goods form Planters
Products. However, UTEFS did not acquiesce to the obligatory
stipulations in the trust receipt. As a consequence,
Metrobank sent letters to UTEFS, Norberto and Jacinto,
demanding payment of the amount due. Jacinto and
Norberto denied their liability for the amount demanded and
requested by Metrobank alleging that the obligation they
guaranteed in 1977 has been extinguished since it has already
been paid in the same year. Moreover, they cannot be held
liable for the obligation contracted in 1979 because they are
not privies thereto as it was contracted without their
participation.
ISSUES:
1. Are Jacinto Dino and Norberto Uy liable as sureties for the
1979 obligations of Uy Tiam to Metrobank by virtue of the
Continuing Suretyship Agreements they separately signed in
1977?
liabilities for said 1979 obligations?
HELD:
1. YES. Under the Civil Code, a guaranty may be given to
secure even future debts, the amount of which may not be
known at the time the guaranty is executed. This is the basis
for contracts denominated as continuing guaranty or
suretyship. A continuing guaranty is one which is not limited
to a single transaction, but which contemplates a future
course of dealing, covering a series of transactions, generally
for an indefinite time or until revoked.
It is prospective in its operation and is generally intended to
provide security with respect to future transactions within
certain limits, and contemplates a succession of liabilities, for
which, as they accrue, the guarantor becomes liable.
Otherwise stated, a continuing guaranty is one which covers
all transactions, including those arising in the future, which
are within the description or contemplation of the contract,
of guaranty, until the expiration or termination thereof.
A guaranty shall be construed as continuing when by the
terms thereof it is evident that the object is to give a standing
credit to the principal debtor to be used from time to time
either indefinitely or until a certain period, especially if the
right to recall the guaranty is expressly reserved. Hence,
where the contract of guaranty states that the same is to
secure advances to be made "from time to time" the guaranty
will be construed to be a continuing one.
In the case at bar, par 1 and 4 of the agreements
unequivocally reveal that the suretyship agreement are
continuing in nature. Norberto and Jacinto do not deny this;
in fact, they candidly admitted it. Neither have they denied
the fact that they had not revoked the suretyhip agreements.
Undoubtedly, the purpose of the execution of the
Continuing Suretyships was to induce appellant to grant any
application for credit accommodation (letter of credit/trust
receipt) UTEFS may desire to obtain from appellant bank. By
its terms, each suretyship is a continuing one, which shall
remain in full force and effect until the bank is notified of its
revocation.
Petitioners maintain, however, that their Continuing
Suretyship Agreements cannot be made applicable to the
1979 obligation because the latter was not yet in existence
when the agreements were executed in 1977; under Article
2052 of the Civil Code, a guaranty "cannot exist without a
valid obligation." We cannot agree. First of all, the succeeding
article provides that "[a] guaranty may also be given as
security for future debts, the amount of which is not yet
known." Secondly, Article 2052 speaks about a valid
obligation, as distinguished from a void obligation, and not an
existing or current obligation. This distinction is made clearer
in the second paragraph of Article 2052, which reads:
Nevertheless, a guaranty may be constituted to guarantee the
performance of a voidable or an unenforceable contract. It
may also guarantee a natural obligation.

2. As to the amount of their liability under the Continuing

Suretyship Agreements, petitioners contend that the public
respondent gravely erred in finding them liable for more than
the amount specified in their respective agreements, to wit:
(a) P800,000.00 for petitioner Diño and (b) P300,000.00 for
petitioner Uy.

The limit of the petitioners respective liabilities must be

determined from the suretyship agreement each had signed.
Indeed, the Continuing Suretyship Agreements signed by
petitioner Diño and petitioner Uy fix the aggregate amount of
their liability, at any given time, at P800,000.00 and
P300,000.00, respectively. The law is clear that a guarantor
may bond himself for less, but not for more than the principal
debtor, both as regards the amount and the onerous nature
of the conditions.